888’S SHARE price is 13% down today after the company issued a profit warning, with some analysts speculating that the news leaves 888 ripe for takeover.

The company attributed the expected fall in particular to setbacks in poker due to competition from US-facing sites, also recently blamed for dips in poker revenue at Bwin and PartyGaming, and said that while bingo trading is successful following 888’s acquisition of Wink Bingo in December 2009, all other verticals have floundered.

Also blamed were an anticipated decline in online gaming in favour of sports betting during the football World Cup, and an estimated $5m loss from currency movements.

888’s statement read: “Revenue has been impacted by the weakness of the Euro and Sterling against the US Dollar (the company's reporting currency)… Management estimate that May revenue would have been approximately US$1.9 million higher had exchange rates remained at their January average levels."

The company confirmed that is applying for a French licence in light of new regulations expected in June, with the transition and marketing investment planned expected to have a “short to medium term financial impact”.

Analysts divided over consolidation

News of the projected profit fall led to speculation among analysts that it could speed industry consolidation. Brokerage Panmure’s Simon French said: "We think the group's attractiveness as an M&A target will only increase with this warning."

KBC Peel Hunt analyst Nick Batram agreed: "It could well accelerate any industry consolidation. We continue to believe that 888 is an attractive industry asset."

The statement from 888 today continued that “although it is trading in difficult conditions, the group continues to trade profitably, is cash flow positive and its financial position remains strong… A number of steps, including cost cutting, have already been implemented and the board remains confident about the future.”

However Ivor Jones, an analyst at brokerage Numis Securities, argued that “trading is clearly continuing to deteriorate at 888 and, unlike a month ago, the scale of potential cost-cutting is not enough to compensate.”

Jones also argued against increased prospects for a takeover. “Even though the share price has fallen today, the potential for 888 to be acquired has diminished in our view, largely because of the uncertainty over trading”, he said.

“The share price has already materially underperformed its peers and the company has been buying back shares, both of which may prevent a further material fall on the back of today’s news. The possibility of M&A remains, but with reduced confidence in forecasts this can no longer sustain a Buy rating.”

Rival PartyGaming also saw its share price dip today, decreasing by 7%.

For more on the company, see our CEO Interview: Gigi Levy, 888 published today.

Source: www.egrmagazine.com

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